Something for Nothing

You don’t get something for nothing
You can’t have freedom for free
You won’t get wise
With the sleep still in your eyes
No matter what your dreams might be

– Neil Peart, (Rush), from the album 2112, 1976

In all the gnashing of teeth and moaning about the economy and the deep recession we find ourselves falling head first into, the clear solution is easy to ignore. We have to make stuff.

A society is prosperous if it produces. In the last twenty or so years, the emphasis has shifted from producing stuff we could trade and sell to, bluntly, trying to get something for nothing. In part this is reflected in the tremendous growth of the service sector. While the service part of the economy is important, the shift away from production to service became, in recent years, unsustainable. It was in essence a fake economy. Much of the service sector was in trying to make a quick buck — mortgage brokers, financial operators, and in general people working in the fields of credit and investment.

Don’t get me wrong. Credit and investment are essential to economic growth; we need those sectors of the economy or we won’t have a functioning economy. In recent years those sectors themselves bubbled as the “wealth effect” fooled people into thinking all you needed to do to make money is be clever and take advantage of short term circumstances.

A case in point: Pistol. I don’t know who Pistol was. I “talked” with him (or her?) back in the late 90s in internet debates. Pistol was a statistician who had quit his/her job to make money in the stock market. Pistol bragged about the amount of money made and said only stupid people aren’t getting rich. Anybody with a basic income base (or credit) could get into the stock market and then simply grow assetts and life off a portion of that growth. It literally was something for nothing — you need not produce, you need not even serve, just speculate.

That bubble burst, but the same thing happened with property. People earning $30,000 a year might reasonably have said that they couldn’t afford a $100,000 house. But when told by mortgage brokers that if they could manage to get that loan and buy that house, its value would increase to $150,000 or so in just a couple of years. Free money! But only if you can find a way to get a loan. So it was made easy — high interest rates because of low income, but the first couple years could be planned to be interest only or some low starter rate. Then, before the rates would rise, one could refinance using equity in the home to get a lower rate. That scheme, which made banks, mortgage brokers and others a lot of money, led to the subprime mortgage collapse, which was the first part of the ‘fake economy’ of recent years to fail. And, of course, we know that many others in the financial sector bundled these mortgages into securities and made money on them — again, something for nothing — sending toxicity into the global financial system.

We in America, enjoying trade deficits (others making stuff for us cheap, while we didn’t have to reciprocate thanks to our dominance of global finance) and budget deficits (borrowing from our childrent o party today), also were in the pursuit of something for nothing. Our savings rates plummeted as consumption increased. More! Now! If we can’t drive the car off the lot today, well that’s unacceptable. Personal debt skyrocketed, credit card debt went from just over $200 billion in 2002 to over $900 billion now. People borrowed against the increasing value of their homes to live a lifestyle beyond their means.

In short, we were caught up in an orgy of consumption, believing that we can have what we want with no sacrifice. Getting something for nothing became a kind of national delusion.

That’s shattering all around us. Like after a wild party where one drinks and eats far too much, the hangover from this consumption binge is causing real pain. And, just as those who overconsume food and drink for decades end up with diseases that threaten ones’ life and physical capacity, this over consumption has created a weaker, debilitated economic system. Trying to get something for nothing may seem to work for awhile, but ultimately we pay the price. Unfortunately in a social system like ours the price isn’t always paid by the same people who indulged — I’ll address that issue of social justice another time.

Just as an alcoholic or morbidly obese person can recover and change their lives, so can we as a society recover from our binge. The first lesson to learn is that we don’t get something for nothing. We need to produce. Yes, we need banks, credit markets, mortgage brokers and the like. But to work to help those who produce build their lives, not as a route to cheap quick wealth. Investing in infrastructure the way President elect Obama plans can be a useful first step, but only if it’s part of an effort to get America producing stuff people want, not just enjoying cheap goods from abroad.

Ultimately, we can’t prosper by valuing consumption over production. Our status as a superpower and our dominance of the financial sector made it seem we could for the last quarter century. I’m not sure how we recast our economy, especially given how we are starting in immense governmental and private debt. But as complex as the problem is, the answer is crystal clear: produce. Reject the idea that we can get something for nothing.

As an occassional QandO visitor, I’ve read a number of your posts in the past over there, but I can’t recall agreeing with anything you’ve written. Here though, I think you’ve pretty well nailed it with this post. Economies can and do evolve, from sweat-based jobs to knowledge based jobs, and even among blue collar jobs from manual ditch-digger jobs to more productive and higher paying jobs driving earth movers and cranes.. but you’ve touched upon an important observation – the pendulum appears to have swung too far in the direction of consumption and service based jobs with little market demand (including your own job and that of other academics?) versus making stuff that people actually want and need. I also think you’re right that it will take harsh economic times to force us to “bottom out” of this unproductive behavior.

It’s strange though, how you embrace Obama’s trillion dollar make-work program, which seems entirely inconsistent with your prescription that we need to make things people need. Perhpaps you believe intellectual inconsistency is ok if it’s supporting your politics.

Well, Darrell, I’m glad we can agree on something. I do see education as important in society, and suspect there will always be market demand for that (it’s important especially to keep a society competitive). I can’t say I embrace Obama’s program. We’re about $10 or $11 trillion in debt now. Adding to that risks a lot, including a possible drop in dollar value which could cause inflation and make the recession even more difficult to get out of. Only money smartly spent in ways not just to “rebubble” the economy but actually increase production and overcome the imbalances of the past two or three decades would make sense. I’m not sure how Obama’s plan would address that, I haven’t looked at it closely it.

One thing I’ve thought about, and heard addressed elsewhere by a few different people…on rebuilding the infrastructure……those able bodied people on welfare, and those unemployed workers can earn their checks by being put to work on some of this. A lot of that manual labor work wouldn’t take much in the way of training, and could justify the continued payments they receive. Sure for all the work they’d be doing, we could give them something above and beyond the monthly checks, but it would cost less for the companies overseeing the work to pay them, if they are already receiving those checks in the first place. Meanwhile, others can work on solving our manufacturing vs service imbalance.